Theory question 102
National IncomeSection A (data response: answer one question only from this section)
The following data relate to a closed economy of a country where all production takes place in two firms. Use the information in the table to answer the questions that follow:
Items | Firm A (in 000 Dollars) | Firm B (in 000 Dollars)
Sales | 200 | 400
Raw Materials | 100 | 60
Labour Costs | 80 | 160
Depreciation | 16 | 40
Profits | 4 | 140
(a)(i) Which of the items listed above is an intermediate input? (ii) What happens to intermediate inputs in the calculation of the national income? (iii) Calculate the Gross Domestic Product (GDP) of the country.
(b)(i) Calculate the total amount of depreciation of the country. (ii) Calculate the Net Domestic Product of the country.
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(a)(i) Raw materials.
(ii) They are left out (subtracted from sales) so that the same output is not counted twice (double counting); only value added is counted.
(iii) Value added: Firm A = 200 − 100 = $100,000; Firm B = 400 − 60 = $340,000; GDP = $440,000. (Check: labour + depreciation + profit = 100 + 340 = 440 thousand.)
(b)(i) Depreciation = 16 + 40 = $56,000.
(ii) NDP = GDP − depreciation = 440,000 − 56,000 = $384,000.
GDP is the sum of value added, not the sum of sales.